Varne Chemprocessors (a) The standard usage rate of UK194 per litre of Varnelyne is 200/5,000 = 0.04. The standard price is £392/200 = £1.96 per litre of UK194. Materials usage variance (UK194) is [(637,500 × 0.04) − 28,100] × £1.96 = £5,096 (A) Materials price variance is (28,100 × £1.96) − £51,704 = £3,372 (F) (b) The net variance on UK194 was, from the calculations in (a), £1,724 (A) (that is £5,096 − £3,372). This seems to have led directly to savings elsewhere of £4,900, giving a net cost saving of over £3,000 for the month. Unfortunately things may not be quite as simple as the numbers suggest. The non- standard mix to make the Varnelyne might lead to a substandard product, which could have very wide-ranging ramifications in terms of potential loss of market goodwill. There is also the possibility that the material for which the UK194 was used as a substitute was already held in inventories. If this were the case, is there any danger that this material may deteriorate and, ultimately, prove to be unusable? Other possible adverse outcomes of the non-standard mix could also arise. The question is raised by the analysis in part (a) (and by the production manager’s comment) of why the cost standard for UK194 had not been revised to take account of the lower price prevailing in the market. (c) The variances, period by period and cumulatively, for each of the two materials are given as follows: UK500 UK800 Period Cumulative Period Cumulative Period £ £ £ £ 1 301 (F) 301 (F) 298 (F) 298 (F) 2 (251) (A) 50 (F) 203 (F) 501 (F) 3 102 (F) 152 (F) (52) (A) 449 (F) 4 (202) (A) (50) (A) (98) (A) 351 (F) 5 153 (F) 103 (F) (150) (A) 201 (F) 6 (103) (A) zero (201) (A) zero Without knowing the scale of these variances relative to the actual costs involved, it is not possible to be too dogmatic about how to interpret the above information. UK500 appears to show a fairly random set of data, with the period variances fluctu- ating from positive to negative and giving a net variance of zero. This is what would be expected from a situation that is basically under control. UK800 also shows a zero cumulative figure over the six periods, but there seems to be a more systematic train of events, particularly the four consecutive adverse variances from period 3 onwards. This looks as if it may be out of control and worthy of investigation. 7.7 APPENDIX D SOLUTIONS TO SELECTED EXERCISES 504 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 504 Mylo Ltd (a) The annual depreciation of the two projects is: Project 1: = £31,000 Project 2: = £18,000 Project 1 (1) Year 0 Year 1 Year 2 Year 3 £000 £000 £000 £000 Operating profit/(loss) 29 (1) 2 Depreciation 31 31 31 Capital cost (100) Residual value 7 Net cash flows (100) 60 30 40 10% discount factor 1.000 0.909 0.826 0.751 Present value (100.00) 54.54 24.78 30.04 Net present value 9.36 (2) Clearly the IRR lies above 10%; try 15%: 15% discount factor 1.000 0.870 0.756 0.658 Present value (100.00) 52.20 22.68 26.32 Net present value 1.20 Thus the IRR lies a little above 15%, perhaps around 16%. (3) To find the payback period, the cumulative cash flows are calculated: Cumulative cash flows (100) (40) (10) 30 Thus the payback will occur after 3 years if we assume year-end cash flows. Project 2 (1) Year 0 Year 1 Year 2 Year 3 £000 £000 £000 £000 Operating profit/(loss) 18 (2) 4 Depreciation 18 18 18 Capital cost (60) Residual value 6 Net cash flows (60) 36 16 28 10% discount factor 1.000 0.909 0.826 0.751 Present value (60.00) 32.72 13.22 21.03 Net present value 6.97 (£60,000 − £6,000) 3 (£100,000 − £7,000) 3 8.1 Chapter 8 SOLUTIONS TO SELECTED EXERCISES 505 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 505 (2) Clearly the IRR lies above 10%; try 15%: 15% discount factor 1.000 0.870 0.756 0.658 Present value (60.00) 31.32 12.10 18.42 Net present value 1.84 Thus the IRR lies a little above 15%; perhaps around 17%. (3) The cumulative cash flows are: Cumulative cash flows (60) (24) (8) 20 Thus the payback will occur after 3 years (assuming year-end cash flows). (b) Presuming that Mylo Ltd is pursuing a wealth-enhancement objective, Project 1 is preferable since it has the higher NPV. The difference between the two NPVs is not significant, however. Newton Electronics Ltd (a) Option 1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 £m £m £m £m £m £m Plant and equipment (9.0) 1.0 Sales revenue 24.0 30.8 39.6 26.4 10.0 Variable costs (11.2) (19.6) (25.2) (16.8) (7.0) Fixed costs (ex. dep’n) (0.8) (0.8) (0.8) (0.8) (0.8) Working capital (3.0) 3.0 Marketing costs (2.0) (2.0) (2.0) (2.0) (2.0) Opportunity costs (0.1) (0.1) (0.1) (0.1) (0.1) (12.0) 9.9 8.3 11.5 6.7 4.1 Discount factor 10% 1.000 0.909 0.826 0.751 0.683 0.621 Present value (12.0) 9.0 6.9 8.6 4.6 2.5 NPV 19.6 Option 2 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 £m £m £m £m £m £m Royalties – 4.4 7.7 9.9 6.6 2.8 Discount factor 10% 1.000 0.909 0.826 0.751 0.683 0.621 Present value – 4.0 6.4 7.4 4.5 1.7 NPV 24.0 8.5 APPENDIX D SOLUTIONS TO SELECTED EXERCISES 506 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 506 Option 3 Year 0 Year 2 Instalments 12.0 12.0 Discount factor 10% 1.000 0.826 Present value 12.0 9.9 NPV 21.9 (b) Before making a final decision, the board should consider the following factors: (1) The long-term competitiveness of the business may be affected by the sale of the patents. (2) At present, the business is not involved in manufacturing and marketing products. Would a change in direction be desirable? (3) The business will probably have to buy in the skills necessary to produce the prod- uct itself. This will involve costs, and problems could arise. Has this been taken into account? (4) How accurate are the forecasts made and how valid are the assumptions on which they are based? (c) Option 2 has the highest NPV and is therefore the most attractive to shareholders. However, the accuracy of the forecasts should be checked before a final decision is made. Chesterfield Wanderers (a) and (b) Player option Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 £000 £000 £000 £000 £000 £000 Sale of player 2,200 1,000 Purchase of Bazza (10,000) Sponsorship, and so on 1,200 1,200 1,200 1,200 1,200 Gate receipts 2,500 1,300 1,300 1,300 1,300 Salaries paid (800) (800) (800) (800) (1,200) Salaries saved 400 400 400 400 600 (7,800) 3,300 2,100 2,100 2,100 2,900 Discount factor 10% 1.000 0.909 0.826 0.751 0.683 0.621 Present values (7,800) 3,000 1,735 1,577 1,434 1,801 NPV 1,747 Ground improvement option Year 1 Year 2 Year 3 Year 4 Year 5 £000 £000 £000 £000 £000 Ground improvements (10,000) Increased gate receipts (1,800) 4,400 4,400 4,400 4,400 (11,800) 4,400 4,400 4,400 4,400 Discount factor 10% 0.909 0.826 0.751 0.683 0.621 Present values (10,726) 3,634 3,304 3,005 2,732 NPV 1,949 8.6 SOLUTIONS TO SELECTED EXERCISES 507 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 507 (c) The ground improvement option provides the higher NPV and is therefore the preferable option, based on the objective of shareholder wealth maximisation. (d) A professional football club may not wish to pursue an objective of shareholder wealth enhancement. It may prefer to invest in quality players in an attempt to enjoy future sporting success. If this is the case, the NPV approach will be less appropriate because the club is not pursuing a strict wealth-related objective. Simtex Ltd (a) Net operating cash flows each year will be: £000 £000 Sales revenue (160 × £6) 960 Less Variable costs (160 × £4) 640 Relevant fixed costs 170 810 150 The estimated NPV of the new product can then be calculated: £000 Annual cash flows (150 × 3.038*) 456 Residual value of equipment (100 × 0.636) 64 520 Less Initial outlay 480 Net present value 40 * This is the sum of the 12 per cent discount factors over four years. Where the cash flows are constant, it is a quicker procedure than working out the present value of cash flows for each year and then adding them together. (b) (i) Assume the discount rate is 18%. The net present value of the project would be: £000 Annual cash flows (150 × 2.690) 404 Residual value of equipment (100 × 0.516) 52 456 Less Initial outlay 480 NPV (24) Thus an increase of 6%, from 12% to 18%, in the discount rate causes a fall from +40 to −24 in the NPV, a fall of 64 or 10.67 (that is, 64/6) for each 1% rise in the discount rate. So a zero NPV will occur with a discount rate approximately equal to 12 + (40/11.67) = 15.4%. (This is, of course, the IRR.) This higher discount rate represents an increase of about 28% on the existing cost of capital figure. (ii) The initial outlay on equipment is already expressed in present-value terms and so, to make the project no longer viable, the outlay will have to increase by an amount equal to the NPV of the project (that is, £40,000) – an increase of 8.3% on the stated initial outlay. (iii) The change necessary in the annual net cash flows to make the project no longer profitable can be calculated as follows: Let Y = change in the annual operating cash flows. Then (Y × cumulative discount rates for a four-year period) − NPV = 0 8.7 APPENDIX D SOLUTIONS TO SELECTED EXERCISES 508 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 508 This can be rearranged as Y × cumulative discount factors for a four-year period = NPV Y × 3.038 = £40,000 Y = £40,000/3.038 Y = £13,167 In percentage terms, this is a decrease of 8.8% on the estimated cash flows. (iv) The change in the residual value required to make the new product no longer profitable can be calculated as follows: Let V = change in the residual value: (V × discount factor at end of four years) − NPV of product = 0 This can be rearranged as follows: V × discount factor at end of four years = NPV of product V × 0.636 = £40,000 V = £40,000/0.636 V = £62,893 This is a decrease of 63.9% in the residual value of the equipment. (c) The NPV of the product is positive and so it will increase shareholder wealth. Thus, it should be produced. The sensitivity analysis suggests that the initial outlay and the annual cash flows are the most sensitive variables for managers to consider. Kernow Cleaning Services Ltd (a) The first step is to calculate the expected annual cash flows: Year 1 £ £ 80,000 × 0.3 24,000 £160,000 × 0.5 80,000 £200,000 × 0.2 40,000 144,000 Year 2 £ £140,000 × 0.4 56,000 £220,000 × 0.4 88,000 £250,000 × 0.2 50,000 194,000 Year 3 £ £140,000 × 0.4 56,000 £200,000 × 0.3 60,000 £230,000 × 0.3 69,000 185,000 Year 4 £ £100,000 × 0.3 30,000 £170,000 × 0.6 102,000 £200,000 × 0.1 20,000 152,000 8.8 SOLUTIONS TO SELECTED EXERCISES 509 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 509 The expected net present value (ENPV) can now be calculated as follows: Period Expected cash flow Discount rate Expected PV £ 10% £ 0 (540,000) 1.000 (540,000) 1 144,000 0.909 130,896 2 194,000 0.826 160,244 3 185,000 0.751 138,935 4 152,000 0.683 103,816 ENPV (6,109) (b) The worst possible outcome can be calculated by taking the lowest values of savings each year, as follows: Period Cash flow Discount rate PV £ 10% £ 0 (540,000) 1.000 (540,000) 1 80,000 0.909 72,720 2 140,000 0.826 115,640 3 140,000 0.751 105,140 4 100,000 0.683 68,300 NPV (178,200) The probability of occurrence can be obtained by multiplying together the probability of each of the worst outcomes above, that is 0.3 × 0.4 × 0.4 × 0.3 = 0.014. Thus, the probability of occurrence is 1.4%, which is very low. Aires plc (a) The SVA determination of shareholder value will be as follows: Year FCF Discount rate Present value £m 12% £m 1 28.0* 0.893 25.0 2 28.0 0.797 22.3 3 28.0 0.712 19.9 4 28.0 0.636 17.8 Total business value 85.0 Less Loan notes 24.0 Shareholder value 61.0 * The free cash flows will be the operating profit after tax plus the lease depreciation charge (that is, £12.0m + £16m). (b) The EVA ® determination of shareholder value will be as follows: Year Opening capital Capital charge Operating profit EVA ® Discount PV of EVA ® invested (C) (12% × C) after tax rate 12% £m £m £m £m £m 1 64.0 7.7 12.0 4.3 0.893 3.8 2 48.0 5.8 12.0 6.2 0.797 4.9 3 32.0 3.8 12.0 8.2 0.712 5.8 4 16.0 1.9 12.0 10.1 0.636 6.4 20.9 Opening capital 64.0 84.9 Less Loan notes 24.0 Shareholder value 60.9 9.1 Chapter 9 APPENDIX D SOLUTIONS TO SELECTED EXERCISES 510 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 510 Sharma plc Analysis of trading with Lopez Ltd during last year £ Gross sales revenue (40,000 × £20) 800,000 Discount allowed (£800,000 × 5%) (40,000) Manufacturing cost (40,000 × £12) (480,000) Sales order handling (22 × £75) (1,650) Delivery costs (22 × 120 × £1.50) (3,960) Customer sales visits (30 × £230) (6,900) Credit costs [(£800,000 − £40,000) × 2 /12 × 2%] (2,533) (535,043) Profit from the customer for the year 264,957 Shareholder value and EVA ® (a) It is difficult for these different approaches to co-exist in a highly competitive economy. The pursuit of shareholder value may be necessary in order to secure funds and for managers to secure their jobs. A stakeholder approach, which is committed to satisfy- ing the needs of a broad group of constituents, may be difficult to sustain in such an environment. It has been suggested that other stakeholders have been seriously adversely affected by the pursuit of shareholder value. It is claimed that the application of various techniques to improve shareholder value such as hostile takeovers, cost cutting and large manage- ment incentive bonuses have badly damaged the interests of certain stakeholders such as employees and local communities. However, a commitment to shareholder value must take account of the needs of other stakeholders if it is to deliver long-term benefits. (b) If businesses are overcapitalised it is probably because insufficient attention is given to the amount of capital that is required. Management incentive schemes that are geared towards generating a particular level of profits or achieving a particular market share without specifying the level of capital invested can help create such a problem. EVA ® can help by highlighting the cost of capital, through the capital charge. Virgo plc There is no single correct answer to this problem. The suggestions set out below are based on experiences that some businesses have had in implementing a management bonus system based on EVA ® performance. In order to get the divisional managers to think and act like the owners of the business, it is recommended that divisional performance, as measured by EVA ® , should form a significant part of their total rewards. Thus, around 50 per cent of the total rewards paid to managers could be related to the EVA ® that has been generated for a period. (In the case of very senior managers it could be more, and for junior managers less.) The target for managers to achieve could be a particular level of improvement in EVA ® for their division over a year. A target bonus can then be set for achievement of the target level of improvement. If this target level of improvement is achieved, 100 per cent of the bonus should be paid. If the target is not achieved, an agreed percentage (below 100 per cent) could be paid according to the amount of shortfall. If, on the other hand, the target is exceeded, an agreed percentage (with no upper limits) may be paid. The timing of the payment of management bonuses is important. In the question it was mentioned that Virgo plc wishes to encourage a longer-term view among its managers. One approach is to use a ‘bonus bank’ system whereby the bonus for a period is placed in a ‘bank’ and a certain proportion (usually one-third) can be drawn in the period in which it is earned. If the target for the following period is not met, there can be a charge against the 9.5 9.4 9.3 SOLUTIONS TO SELECTED EXERCISES 511 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 511 bonus bank so that the total amount available for withdrawal is reduced. This will ensure that the managers try to maintain improvements in EVA ® consistently over the years. In some cases, the amount of bonus is determined by three factors: the performance of the business as a whole (as measured by EVA ® ), the performance of the division (as measured by EVA ® ) and the performance of the particular manager (using agreed indicators of performance). The performance for the business as a whole is often given the most weighting, and individual performance the least weighting. Thus, 50 per cent of the bonus may be for corporate performance, 30 per cent for divisional performance and 20 per cent for individual performance. Leo plc Free cash flows Year 1 Year 2 Year 3 Year 4 Year 5 After Year 5 £m £m £m £m £m £m Sales revenue 30.0 36.0 40.0 48.0 60.0 60.0 Operating profit (20%) 6.0 7.2 8.0 9.6 12.0 12.0 Less Cash tax (25%) 1.5 1.8 2.0 2.4 3.0 3.0 Operating profit less cash tax 4.5 5.4 6.0 7.2 9.0 9.0 Less ANCAI (15%) (4.5)* (0.9) (0.6) (1.2) (1.8) – AWCI (10%) (3.0)* (0.6) (0.4) (0.8) (1.2) – Free cash flows (3.0) 3.9 5.0 5.2 6.0 9.0 12% discount factor 0.893 0.797 0.712 0.636 0.567 0.567 Present value (2.7) 3.1 3.6 3.3 3.4 42.5 † 53.2 * In the first year, the additional sales revenue will be £30m and so the calculations for non-current (fixed) assets and working capital must be based on this figure. † The terminal value is (9.0/0.12 × 0.567) = 42.5. Total business value will increase by £53.2m. As there has been no change to the level of borrowing, shareholder value should increase by this amount. Divisionalised organisations (a) A divisionalised organisation is one that divides itself into operating units in order to deliver its range of products or services. Divisionalisation is, in essence, an attempt to deal with the problems of size and complexity. Autonomy of action relates to the amount of discretion the managers of divisions have been given by central management over the operations of the division. Two pop- ular forms of autonomy are profit centres and investment centres. Though divisional- isation usually leads to decentralisation of decision making, this need not necessarily be the case. (b) The benefits of allowing divisional managers autonomy include: l Better use of market information. l Increase in management motivation. l Providing opportunities for management development. l Making full use of specialist knowledge. l Giving central managers time to focus on strategic issues. l Permitting a more rapid response to changes in market conditions. 10.1 Chapter 10 9.6 APPENDIX D SOLUTIONS TO SELECTED EXERCISES 512 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 512 (c) There are certain problems with this approach which include: l Goal conflict between divisions or between divisions and central management. l Risk avoidance on the part of divisional managers. l The growth of management ‘perks’. l Increasing costs due to inability to benefit from economies of scale. Transfers between divisions can create problems for a business. Managers of the selling division may wish to obtain a high price for the transfers in an attempt to achieve cer- tain profit objectives. However, the managers of the purchasing division may wish to buy as cheaply as possible in order to achieve their own profit objectives. This can cre- ate conflict, and central managers may find that they are spending time arbitrating dis- putes. It may be necessary for central managers to impose a solution on the divisions where agreement cannot be reached, which will, of course, undermine the divisions’ autonomy. Financial performance measures (a) Contribution represents the difference between the total sales revenue of the division and the variable expenses incurred. This is a useful measure for understanding the relationship between costs, output and profit. However, it ignores any fixed expenses incurred and so not all aspects of operating performance are considered. The controllable profit deducts all expenses (variable and fixed) within the control of the divisional manager when arriving at a measure of performance. This is viewed by many as the best measure of performance for divisional managers as they will be in a position to determine the level of expenses incurred. However, in practice, it may be difficult to categorise expenses as being either controllable or non-controllable. This measure also ignores the investment made in assets. For example, a manager may decide to hold very high levels of inventories, which may be an inefficient use of resources. Return on investment (ROI) is a widely used method of evaluating the profitability of divisions. The ratio is calculated in the following way: ROI =×100% The ratio is seen as capturing many of the dimensions of running a division. When defining divisional profit for this ratio, the purpose for which the ratio is to be used must be considered. When evaluating the performance of a divisional manager, the controllable contribution is likely to be the most appropriate, whereas for evaluat- ing the performance of a division, the divisional contribution is likely to be more appro- priate. Different definitions can be employed for divisional investment. The net assets or total assets figure may be used. In addition, assets may be shown at original cost or some other basis such as current replacement cost. (b) There are several non-financial measures available to evaluate a division’s performance. Examples of these measures have been cited in the chapter. Further examples include: l Plant capacity utilised. l Percentage of rejects in production runs. l Ratio of customer visits to customer orders. l Number of customers visited. If a broad range of financial and non-financial measures covering different time hori- zons are used, there is a better chance that all of the major dimensions of management and divisional performance will be properly assessed. Focusing on a few short-term financial objectives incurs the danger that managers will strive to achieve these at the expense of the longer-term objectives. Clearly, ROI can be increased in the short term Division profit Divisional investment (assets employed) 10.2 SOLUTIONS TO SELECTED EXERCISES 513 Z04_ATRI3622_06_SE_APP4.QXD 5/29/09 10:43 AM Page 513 [...]... NPV calculations 272, 273 information for budgets 177–8 competitors’ businesses 321–2 cost-plus information, used by price takers 164–5 on creditworthiness 425 full (absorption) cost information, using 121–3 market information 369 non-financial information 24–5 quality 30 range 30 standards setting 245 see also management accounting: information information systems 21 information technology(IT) 26–7... 230, 232–3, 455 Ford Motors 154, 207 forecasts 179, 455 Forth Ports plc 282 forward thinking, budgets and 183 free cash flows 344–6, 347–8, 455 full (absorption) costing 92–133 alternative approaches 123–6, 137–8 behaviour of costs 99–100 criticisms 123 forward-looking nature 120 information, using 93–4, 121–3 managers’ needs to know full costs 93–4 meaning of term 94–5, 455 multi-product businesses 96–120... character in credit decisions 424 Chelsea Football Club 39 cheque clearance 438 chief executive officers (CEO) 2, 3 Citigroup Inc 5, 10 City Link (parcel delivery business) 76 closing decisions 83–5 collateral in credit decisions 424 committed costs 453 common costs 96, 283, 374–6, 453 see also overheads communication about cost management 332 communities 12 accounting information for 16 companies 2–3... long-term business stability 13 long-term performance, divisional 381–2 long-term planning 13 long-term returns 269, 342 loss leaders 168–9 lost interest (in investment decisions) 270, 273 loyalty of customers 334 machine hours, as basis for charging overheads 105, 106, 108, 115 McKinsey & Co (management consultants) on board meetings 6–7 on competitor analysis 322 on investment decisions 306 make-or-buy decisions... 25–6 information cost–benefit issues 18–21 key characteristics 17–18 managers’ requirements 23–4 materiality 18 systems 21, 456 usefulness 16–17, 20 information technology and 26–7 meaning of term 15–16, 456 non-financial information, reporting 24–5 for non-governmental organisations 32 for not -for- profit organisations 31–2 phases 22–3 role changes 27–8 as service provision 17–18 see also strategic management. .. scorecard 334–9 in budgeting 203 in divisional performance 396–401 reporting 400–1 non-governmental organisations (NGOs), management accounting for 32 non-linear relationships 74–5 non-operating profit variances 234–5, 457 NOPAT (non-operating profit after tax) 350, 353, 354 Norton, D 334, 337, 338, 339 not -for- profit organisations, management accounting information for 31–2 NPV see net present value objective... 374–5 other-businesses comparison 383 performance measurements assessment 387 budgeted/target performance 383 contribution 373 economic value added 383–5 inter-divisional comparisons 383 long-term performance 381–2 non-financial measures 396–401 NPV 381–2 previous performance 383 profits 374 residual income 379–80, 381–2, 384, 385 return on investment 376–9, 381–2, 384, 385 profits 372–6 reasons for 367 structures... 343–4 superiority 278 UK businesses 287, 289 US businesses 288 new industries, emergence of 11 Next plc 231, 412 NGOs (non-governmental organisations), management accounting for 32 NHS (National Health Service) 27–8, 94, 103, 440 Nike 13 Nissan Motors UK Ltd 423 non-accounting management style 241 non-controllable costs 374, 457 non-current assets 345, 346, 349 non-financial information, reporting 24–5... comparability of management accounting information 18, 453 compensating variances 453 competition 2, 12, 340 between divisions 371 competitive advantage cost leadership 319, 327–33 value chain analysis 330–1 competitive international market 136 competitors accounting information for 16 analysis 319–22, 453 conditions in credit decisions 424 continual (or rolling) budgets 180, 453, 459 continuation decisions... of activity volume 74, 458 reliability of management accounting information 17, 458 Renault 150–1 rent costs 58, 95 reordering systems for inventories management 417–18 reporting financial and non-financial measures 400–1 frequency 30 nature of reports 30 reputation of customers (in credit management) 424 research and development (R&D) expenditure divisional performance and 397 shareholder value and 351 . indicators of performance). The performance for the business as a whole is often given the most weighting, and individual performance the least weighting. Thus, 50 per cent of the bonus may be for corporate. Thus, 50 per cent of the bonus may be for corporate performance, 30 per cent for divisional performance and 20 per cent for individual performance. Leo plc Free cash flows Year 1 Year 2 Year 3. 2/12} (400.0) {[£3.15m − (£3.15m × 20%)] × 2/12} (420.0) Accrued variable expenses [£3m × 1/12 × 10%] (25.0) [£3.15m × 1/12 × 10%] (26.3) Accrued fixed expenses (15. 0) (440.0) (15. 0) (461.3) Investment